Vietnam's Deputy Trade Minister Phan The Rue warned rice exporters that the Government would not allow them to continue exporting or to access bank loans if they signed undervalued export contracts.

The Trade Ministry's warning was aimed at stopping domestic rice exporters from exporting rice at low prices while world market prices continue to rise. A tonne of Vietnamese rice (5 per cent broken) is currently sold at only US$240-$242 compared to the world rate of $258-$260.

Rue forecast the world's rice prices would continue to increase this year as demand surges.

According to the Trade Ministry, India this year targeted to export only 3 million tonnes of rice, roughly 2 million tonnes lower than last year.

Vietnam was also decreasing its rice exports, exporting roughly 200,000 tonnes less than during 2005.

Other rice exporters such as Thailand and China would not increase their rice exports. Meanwhile, Indonesia would resume its rice imports this year.

He also said the Trade Ministry would ask the Government to immediately buy rice for the national food security stockpile to help control the abundant rice volume as the country was harvesting a large amount of grain.

The Vietnam Food Association (VFA) also said it would closely supervise domestic rice exporters so they would sign only reasonably priced contracts.

The association attributed the decrease in Vietnamese rice prices to the abundance of grain in the domestic market, while rice exporters were short of capital to buy rice for stockpile.

The exporters, therefore, were forced to sell their product at undervalued prices in order to ensure the capital necessary to run their businesses.

VFA chairman Truong Thanh Phong said rice exporters needed a significant injection of capital, adding that during the export season, each rice exporter needed between VND200 to 300 billion for operations.

Most exporters relied on banks to ensure a source of capital.

He said if rice exporters had enough capital to stockpile roughly 500,000 tonnes of rice, rice importers would not be able to capitalise on the shortcoming to force low prices from Vietnamese exporters.

According to officials from the Vietnam Industrial and Commercial Bank, banks were not lacking capital for loans, and this year they targeted to lend the food industry roughly VND4.4 trillion, VND400 billion higher than last year. However, rice businesses must have effective business plans, he added.

Banks reported that rice exporters had difficulty accessing bank loans as the businesses often faced high risks related to quality and price. Due to restrictions in purchase and storage networks, the rice export business was volatile because it was difficult to keep rice quality and price under control with dependence on intermediaries.